New Delhi, Jan 27 (PTI) Prices of imported European cars are widely expected to come down after India agreed to gradually reduce duty under its FTA with the EU to 10 per cent from 110 per cent for 2.5 lakh vehicles a year, over six times more offered to the UK.

India and the European Union (EU) on Tuesday announced the conclusion of negotiations for the free trade agreement (FTA). It is expected to come into force this year.

According to the European Commission, following the India-EU FTA, tariffs on cars will gradually go down from the current 110 per cent to 10 per cent with a quota of 2,50,000 vehicles a year.

In 2024, Europe exported motor vehicles worth 1.6 billion euros to India, the commission added.

The quota offered to the EU is over six times more than what India had offered to the UK of 37,000 units under their separate trade deal inked last year.

It is seen to benefit European players such as Mercedes-Benz, BMW, Audi, Volkswagen, Renault, Lamborghini and Porsche, among others.

Currently, India imposes basic customs duty of 70 per cent plus 40 per cent AIDC (agriculture infrastructure and development cess) at an effective rate of 110 per cent on the import of a completely built unit (CBU) of passenger vehicles priced above USD 40,000. CBU import of passenger vehicles valued up to USD 40,000 attracts a duty of 70 per cent.

A commerce ministry official said the actual threshold is 15,000 euros (about Rs 15 lakh) under the FTA, meaning a car worth Rs 15 lakh will come to the Indian ports. After that, there will be the import duty, taxes, insurance, freight, transportation and registration costs, so all components will add another Rs 10-12 lakh on the landed cost, pushing up the overall prices for consumers.

"In some segments, it (duty reduction) will be 35 per cent and in some, it will be 30 per cent in the first year. And then it will go down gradually to 10 per cent," the official said.

Explaining further, the official said India's auto sector is largely dominated by small cars (retail price Rs 10 lakh - Rs 25 lakh) and the EU's interest in that area is "not great".

"So, that has been taken cognisance of, and we have decided that cars that are likely to sell below Rs 25 lakhs in this country, the EU will not be exporting those cars to India. They may manufacture it here, but they will not be exporting those cars," the official said.

For every car quota that India has given to the EU, "we take 2.5 times quotas from them. So, if I give them 1 lakh cars, I will take 2.5 lakh cars", the official added.

For electric vehicles (EVs), India's quotas will start from the fifth year of the agreement and duty reduction in the EVs will vary in every segment.

"It will not start from day one because our EV market is growing, and the EV production is growing. So, we have actually protected them for the first five years," the official said.

European manufacturers and Indian consumers have been keenly watching the progress of this trade pact, talks for which were started in 2007. Extending duty concessions in the sector was one of the major contentious issues that led to a pause in negotiations in 2013.

However, German luxury carmaker Mercedes-Benz ruled out any price cut in the foreseeable future, saying only around 5 per cent of its sales in India are via CBU imports from the EU.

Mercedes-Benz India MD and CEO Santosh Iyer said, "With more than 90 per cent of Mercedes-Benz India's sales volume comprising 'Made in India' locally manufactured models, and only around 5 per cent of sales coming via CBU imports from the EU, we do not foresee any price reduction for Mercedes-Benz vehicles from the FTA, in the foreseeable future".

Similarly, Audi India Brand Director, Balbir Singh Dhillon, said, "...any implications for pricing and market can only be assessed once the final terms are available and carefully reviewed, including the timeframe of implementation. Until then, it would be premature to draw conclusions on specific commercial or product strategies".

The Indian car market is currently dominated by Japanese and Korean makers, such as Maruti-Suzuki and Hyundai, along with homegrown manufacturers like Tata Motors and Mahindra. As per estimates, European carmakers held about 3 per cent share of the domestic car market.

Passenger vehicle wholesales in India stood at 44,89,717 units in 2025, up 5 per cent from 42,74,793 units in 2024, as per SIAM data. PTI RR RKL RKL BAL BAL